Other Things Equal, An Increase In A Consumer’s Money Income

chapter 1 micro

In economics, the pleasure, happiness, or satisfaction received from a product is called

utility.

When economists say that people act rationally in their self-interest, they mean that individuals:

look for and pursue opportunities to increase their utility.

According to economists, economic self-interest:

is a reality that underlies economic behavior.

Joe sold gold coins for $1000 that he bought a year ago for $1000. He says, “At least I didn’t lose any money on my financial investment.” His economist friend points out that in effect he did lose money because he could have received a 3 percent return on the $1000 if he had bought a bank certificate of deposit instead of the coins. The economist’s analysis, in this case, incorporates the idea of:

opportunity costs.

A person should consume more of something when its marginal:

benefit exceeds its marginal cost.

Economics may best be defined as the:

social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.

The study of economics is primarily concerned with:

choices that are made in seeking the best use of resources.

The economic perspective entails:

a comparison of marginal benefits and marginal costs in decision-making.

Purposeful behavior suggests that:

individuals may make different choices because of different desired outcomes.

Purposeful behavior means that:

people weigh costs and benefits to make decisions.

Economics involves marginal analysis because:

most decisions involve changes from the present situation.

You should decide to go to a movie:

if the marginal benefit of the movie exceeds its marginal cost.

Opportunity costs exist because:

the decision to engage in one activity means forgoing some other activity.

The assertion that “There is no free lunch” means that:

all production involves the use of scarce resources and thus the sacrifice of alternative goods.

Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. This is a reflection of:

purposeful behavior.

If someone produced too much of a good, this would suggest that

the good was produced to the point where its marginal cost exceeded its marginal benefit.

Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. This fact:

implies that, for most people, the marginal benefit of reading the second newspaper is less than the marginal cost.

In deciding whether to study for an economics quiz or go to a movie, one is confronted by the idea(s) of:

scarcity and opportunity costs.

Which one of the following expressions best states the idea of opportunity cost?

“There is no such thing as a free lunch.”

Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students.

opportunity costs.

Which of the following most closely relates to the idea of opportunity costs?

tradeoffs.

Economists contend that most economic decisions are:

purposeful

Alex sees that his neighbors’ lawns all need mowing. He offers to provide the service in exchange for a wage of $20 per hour. Some neighbors accept Alex’s offer and others refuse. Economists would describe Alex’s behavior as:

rational self-interest, because he attempting to increase his own income by identifying and satisfying someone else’s wants.

Kara was out jogging and despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara:

decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile.

Economic theories:

are generalizations based on a careful observation of facts.

In constructing models, economists:

make simplifying assumptions.

The Latin term “ceteris paribus” means:

other things equal.

The basic purpose of the other-things-equal assumption is to:

allow one to reason about the relationship between variables X and Y without the intrusion of variable Z.

Suppose an economist says that “Other things equal, the lower the price of bananas, the greater the amount of bananas purchased.” This statement indicates that:

all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant.

The term “other things equal” means that:

a number of relevant variables are assumed to be constant.

Macroeconomics approaches the study of economics from the viewpoint of:

the entire economy.

Which of the following is associated with macroeconomics?

an empirical investigation of the general price level and unemployment rates since 1990

The problems of aggregate inflation and unemployment are:

major topics of macroeconomics.

Which of the following statements pertains to macroeconomics?

National income grew by 2.7 percent last year.

Macroeconomics can best be described as the:

study of the large aggregates of the economy or the economy as a whole.

Microeconomics:

is concerned with individual economic units and specific markets.

Which of the following is a microeconomic statement?

The price of personal computers declined 4.7 percent last year.

Which of the following statements is true?

. Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole.

A normative statement is one that:

is based on value judgments.

A positive statement is one which is:

objective and is based on facts.

Which of the following is a positive statement?

The temperature is 92 degrees today.

Normative statements are concerned primarily with:

what ought to be.

A positive statement is concerned primarily with:

what is.

Ben says that “An increase in the tax on beer will raise its price.” Holly argues that “Taxes should be increased on beer because college students drink too much.” We can conclude that:

Holly’s statement is normative, but Ben’s is positive.

The economizing problem is:

the need to make choices because economic wants exceed economic means.

The economizing problem is one of deciding how to make the best use of:

The alternative combinations of two goods which a consumer can purchase with a given money income is shown by:

. a budget line.

The budget line shows:

all possible combinations of two goods that can be purchased, given money income and the prices of the goods.

Refer to the budget line shown in the diagram above. If the consumer’s money income is $20, the:

price of C is $4 and the price of D is $2.

Refer to the budget line shown in the diagram above. If the consumer’s money income is $20, which of the following combinations of goods is unattainable?

4 units of C, and 6 units of D.

Refer to the budget line shown in the diagram above. The absolute value of the slope of the budget line is:

PC/PD.

In moving along a given budget line:

the prices of both products and money income are assumed to be constant.

An increase in money income:

shifts the consumer’s budget line to the right.

The shift of the budget line from cd to ab in the above figure is consistent with:

a decrease in money income.

Any combination of goods lying outside of the budget line:

is unattainable, given the consumer’s income.

Suppose you have a money income of $10, all of which you spend on Coke and popcorn. In the above diagram, the prices of Coke and popcorn respectively are:

$.50 and $1.00.

Other things equal, an increase in a consumer’s money income:

shifts her budget line rightward because she can now purchase more of both products.

The slope of a budget line reflects the:

price ratio of the two products.

Suppose Elroy’s budget line is as shown on the above diagram. If his tastes change in favor of Coke and against popcorn, the budget line will:

be unaffected

Assume the price of product Y (the quantity of which is on the vertical axis) is $15 and the price of product X (the quantity of which is on the horizontal axis) is $3. Also assume that money income is $60. The absolute value of the slope of the resulting budget line:

is 1/5

Suppose that Julia receives a $20 gift card for the local coffee shop, where she only buys lattes and muffins. If the price of a latte is $4 and the price of a muffin is $2, then we can conclude that Julia:

can buy 5 lattes or 10 muffins if she chooses to buy only one of the two goods.

Which of the following is a labor resource?

a computer programmer

Which of the following is a capital resource?

a piece of software used by a firm

The four factors of production are:

land, labor, capital, and entrepreneurial ability

Which of the following lists includes only capital resources (and therefore no labor or land resources)?

autos owned by a car rental firm; computers at the car rental agency; the vans that shuffle rental customers to and from the airport.

Money is not an economic resource because:

money, as such, does not produce anything.

Economic resources are also called:

factors of production.

Which of the following do economists consider to be capital?

. a construction crane

The main function of the entrepreneur is to:

innovate.

Which of the following is not a main function of the entrepreneur?

make routine pricing decisions.

The production possibilities curve illustrates the basic principle that:

if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced.

Which of the following will not produce an outward shift of the production possibilities curve?

the reduction of unemployment

Unemployment:

is illustrated by a point inside the production possibilities curve.

If the production possibilities curve is a straight line:

economic resources are perfectly substitutable between the production of the two products.

A production possibilities curve illustrates

scarcity.

A production possibilities curve shows:

the maximum amounts of two goods that can be produced, assuming the full use of available resources.

A nation’s production possibilities curve is bowed out from the origin because:

resources are not generally equally efficient in producing every good.

Refer to the above table. If the economy is producing at production alternative C, the opportunity cost of the tenth unit of consumer goods will be:

. 1/3 of a unit of capital goods.

Refer to the above table. As compared to production alternative D, the choice of alternative C would:

tend to generate a more rapid growth rate.

Refer to the above table. A total output of 3 units of capital goods and 4 units of consumer goods:

would involve an inefficient use of the economy’s scarce resources.

Refer to the above table. For this economy to produce a total output of 3 units of capital goods and 13 units of consumer goods it must:

achieve economic growth.

Refer to the above table. For these data the law of increasing opportunity costs is reflected in the fact that:

larger and larger amounts of capital goods must be sacrificed to get additional units of consumer goods.

When an economy is operating under conditions of full employment, the production of more of commodity A will mean the production of less of commodity B because:

resources are limited.

The production possibilities curve:

is a frontier between all combinations of two goods that can be produced and those combinations that cannot be produced.

Any point inside the production possibilities curve indicates:

that more output could be produced with available resources.

Refer to the above diagram. Other things equal, this economy will achieve the most rapid rate of growth if:

it chooses point A.

Refer to the above diagram. This economy will experience unemployment if it produces at point:

D

Which of the following is assumed in constructing a typical production possibilities curve?

production technology is fixed.

The typical production possibilities curve is:

a downsloping line that is bowed out from the origin.

Assume an economy is incurring unemployment. The effect of resolving this problem will be to:

move the level of actual output on to the economy’s production possibilities curve.

Which of the following is not correct? A typical production possibilities curve:

specifies how much of each product society should produce.

Refer to the above diagram. This production possibilities curve is constructed so that:

the opportunity cost of both bread and tractors increases as more of each is produced.

Refer to the above diagram. Starting at point A, the opportunity cost of producing each successive unit of tractors is:

. 2, 4, 6, and 8 units of bread.

Refer to the above diagram. Starting at point E, the production of successive units of bread will cost:

1/8, 1/6, 1/4, and 1/2 units of tractors.

The negative slope of the production possibilities curve is a graphical way of indicating that:

to produce more of one product we must do with less of another.

If an economy is operating on its production possibilities curve for consumer goods and capital goods, this means that:

more consumer goods can only be produced at the cost of fewer capital goods.

The construction of a production possibilities curve assumes:

technology is fixed.

If an economy is operating inside its production possibilities curve for consumer goods and capital goods, it:

can produce more of both consumer goods and capital goods by using resources that are currently idle.

. Refer to the above diagram. Points A, B, C, D, and E show:

combinations of bicycles and computers that society can produce by using its resources efficiently

Refer to the above diagram. If society is currently producing 9 units of bicycles and 4 units of computers and it now decides to increase computer output to 6, the cost:

will be 4 units of bicycles.

Refer to the above diagram. The combination of computers and bicycles shown by point G is:

unattainable, given currently available resources and technology.

Refer to the above diagram. If society is currently producing the combination of bicycles and computers shown by point D, the production of 2 more units of bicycles:

will cost 1 unit of computers.

Refer to the above diagram. The combination of computers and bicycles shown by point F:

is attainable, but implies that the economy is not using all its resources.

Refer to the above diagram. The movement down the production possibilities curve from point A to point E suggests that the production of:

both bicycles and computers are subject to increasing opportunity costs

The law of increasing opportunity costs states that:

if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of another good to do so.

The concept of opportunity cost:

suggests that the use of resources in any particular line of production means that alternative outputs must be forgone.

The law of increasing opportunity costs is reflected in a production possibilities curve that is:

bowed out from the origin.

The marginal benefit curve is:

downsloping because successive units of a specific product yield less and less extra benefit.

The marginal cost curve is:

upsloping because of increasing marginal opportunity costs.

If the output of product X is such that marginal benefit equals marginal cost:

the correct amount of resources is being allocated to X’s production.

Refer to the above diagram for athletic shoes. The optimal output of shoes is:

Q2.

Refer to the above diagram for athletic shoes. If the current output of shoes is Q1, then:

society would consider additional units of shoes to be more valuable than alternative uses of those resources.

Refer to the above diagram for athletic shoes. If the current output of shoes is Q3, then:
A. resources are being allocated efficiently to the production of shoes.

society would consider additional units of shoes to be less valuable than alternative products.

Refer to the above diagram for athletic shoes. If the current output of shoes is Q3, then:

society should produce fewer shoes to achieve the optimal allocation of resources.

Suppose that an economy is producing on its production possibilities curve, but is not producing quantities of each good where the marginal benefit equals the marginal cost for each good. This economy:

can improve its allocation by producing more of one good and less of the other.

Which of the following will shift the production possibilities curve to the right?

a technological advance that allows farmers to produce more output from given inputs

Other things equal, which of the following would shift an economy’s production possibilities curve to the left?

a law requiring mandatory retirement from the labor force at age 55

Refer to the above diagram. The concept of opportunity cost is best represented by the:

move from B on PP1 to C on PP1.

Refer to the above diagram. Other things equal, which of the following positions relative to PP1 would be the most likely to result in a future production possibilities curve of PP3, rather than PP2?

A.

Refer to the above diagram. An improvement in technology will:

shift the production possibilities curve from PP1 to PP2.

Refer to the above diagram. Which one of the following would shift the production possibilities curve from PP1 to PP2?

immigration of skilled workers into the economy

Which of the following statements, if any, is correct for a nation that is producing only consumer and capital goods?

Other things equal, the more capital goods a nation produces, the greater will be its future growth rate.

(Consider This) A direct cost of going to college is:

tuition, while an indirect cost (opportunity cost) is forgone income while in college.

(Consider This) An exception to the advice “go to college, stay in college, and earn a degree” occurs when:

the opportunity cost of attending college is extraordinarily high.

If we say that two variables are directly related, this means that:

an increase in one variable is associated with an increase in the other variable.

If we say that two variables are inversely related, this means that:

an increase in one variable is associated with a decrease in the other.

Which of the following statements is correct?

The value of the dependent variable is determined by the value of the independent variable.

If two variables are inversely related, then as the value of one variable:

increases, the value of the other decreases.

If a positive relationship exists between x and y:

the relationship will graph as an upsloping line.

The slope of a straight line can be determined by:

comparing the absolute vertical change to the absolute horizontal change between two points on the line.

Refer to the above diagram. The variables X and Y are

directly related.

Refer to the above diagram. The vertical intercept:

is 50.

Refer to the above diagram. The slope of the line:

is + 1/4.

Refer to the above diagram. The equation that shows the relationship between Y and X is:

Y = 50 + 1/4 X.

Assume a household would consume $100 worth of goods and services per week if its weekly income were zero and would spend an additional $80 per week for each $100 of additional income. Letting C represent consumption and Y represent income, the equation that summarizes this relationship is:

C = 100 + .8Y.

If the equation y = 15 – 4x was plotted, the:

slope would be -4.

If the equation y = -10 + 2.5x was plotted:

the vertical intercept would be -10.

The movement from line A to line A’ represents a change in:

the intercept only.

In the above diagram variables x and y are:

inversely related.

In the above diagram the vertical intercept and slope are:

4 and -1 1/3 respectively.

In the above diagram the equation for this line is:

y = 4 – 1 1/3 x.

Refer to the above diagram. The slope of curve ZZ at point A is approximately:

+2 1/2.

Refer to the above diagram. The slope of curve ZZ at point B is:

. zero.

Refer to the above diagram. The slope of curve ZZ at point C is approximately: